Establishing a subsidiary is a significant step for any company, and choosing Luxembourg is an excellent way to make your mark in the European Union (EU). While growing your company is exciting, it can also be stressful to establish a new subsidiary in a region where you may not be familiar with local laws. Instead of figuring it out alone, G-P can help.
Here are a few key aspects to consider before establishing a Luxembourg subsidiary or working with a subsidiary alternative.
How to establish a Luxembourg subsidiary
A subsidiary is a company whose capital was formed by at least 50% of financial contributions from another company, known as the parent company. If you decide to establish a subsidiary in Luxembourg, you’ll need to carefully consider the exact location for your entity. Culture and languages may vary based on region, which can impact how your business operates.
International companies have 5 options to choose from when registering their business. The most popular is a “Société á Responsabilité Limitée” (SARL.a.r.l.), which is similar to a private limited liability company. Most companies that want to establish a Luxembourg subsidiary choose this option. However, the choice depends on how active you will be in the country.
The steps to establish a Luxembourg subsidiary include:
- Deposit the minimum capital amount (this needs to be fully subscribed and paid at the time of incorporation).
- Verify your company and reserve your name.
- Get a notary to draft and notarize your company deed.
- Apply for a business license.
- Register with the Trade and Companies Register.
- Register for VAT.
- Unblock the authorized capital.
Luxembourg subsidiary laws
Luxembourg subsidiary laws vary based on the type of business you register. For a SARL, you’ll need a minimum paid-up capital of EUR 12,000. This capital is divided into registered shares, with or without a nominal value. Public issues of shares or bonds are not permitted, but private bond issues are — shareholders’ approval is required for convertible bonds. Companies must have between 2 and 100 shareholders, and shareholders are liable up to the amount of their paid-up capital.
A SARL is managed by 1 or more managers who may or may not be shareholders. For SARLs with more than 60 shareholders, a general meeting with all members must be held at least once a year. SARLs with more than 60 shareholders are also subject to compulsory oversight by 1 or more internal auditors, whose names are mentioned in the articles of association. These auditors may or may not be shareholders.
Other relevant laws include making sure your company name is unique, establishing in-country bank accounts to deposit capital, and officially incorporating before a Luxembourg notary public.
Benefits of establishing a Luxembourg subsidiary
Once you follow all Luxembourg subsidiary laws and start operating your company, you can enjoy multiple benefits. Subsidiaries can run independently from the parent company, which shields the parent company from any costly litigation or mistakes. This arrangement also benefits the subsidiary as you can choose the structure that fits best with Luxembourg’s culture.
In addition, as a local company, the subsidiary is entitled to public aid, opening the doors to new investors, and the parent company may benefit from tax exemptions with regards to the dividends distributed by the subsidiary, among other benefits.
Other important considerations
Before you prepare any paperwork for your subsidiary, you’ll need to designate certain roles within your company. Someone will need to set time aside to learn all the intricacies of Luxembourg subsidiary laws. You’ll also need to set aside the right amount of money to cover the necessary startup capital, among other expenses.
Additionally, consider that some sectors of activity require a special authorization (e.g., banking, finance, insurance, real state, etc.).
It can take months to establish a Luxembourg subsidiary on your own. Luckily, there are alternatives. With G-P, companies can leverage our established Luxembourg subsidiary to begin hiring in minutes, not months. Our robust team of HR and legal experts will help you remain compliant with all of Luxembourg’s labor laws, while providing ongoing support every step of the way.
Enter new markets with G-P — no new entities required.
Beat the competition and enter new markets in minutes, not months, with G-P. We’ve paired our industry-leading team of in-region HR and legal experts with our #1 Global Growth Platform™ to help you hire compliantly in 180+ countries, eliminating the need to set up local entities or subsidiaries.
Get in touch today to learn more about how we can streamline the global growth process.